How Europe can punch back at Beijing and Washington

There’s a fight going on — for global technological and economic leadership. In one corner, the U.S. is aggressively defending its position as the traditional business superpower. In the other, China is transforming itself from imitator to innovator. Where’s Europe? We look like a passive spectator at risk of becoming a punching bag between Washington and Beijing.

Europe once had ambition. The 2000 Lisbon strategy laid out the goal of making the EU “the most competitive and knowledge-based economy in the world” by 2010. Eight years have passed since that goal was to be attained — and where are we now? The “Old Continent” is looking, well, frankly, just old.

Europe is being squeezed by the U.S. and China. Despite the U.S. administration’s retrogressive trade policies, it remains the world’s technological and digital powerhouse. The GAFAs (Google, Apple, Facebook, Amazon) dominate not just the way we live and communicate, but also how we conduct business. And there are no European competitors in sight.

At the same time, China is speeding up and increasing investments. Beijing’s “Made in China 2025 Strategy” aims to build global industry champions in energy, robotics and aviation. And China is accelerating its transformation by taking over strategic industries abroad — if you can’t build it yourself, just go shopping!

The time of being passive spectators is over. Europe can’t afford another Lisbon standstill.

Europeans are champions in observing — but not acting on — trends like these. But there’s much the EU can do to break free of the clinch.

To begin with, Europe must nurture its innovation ecosystem. That starts with education. Hidden from the headlines, a silent revolution in third-level education is consolidating China’s future tech dominance. Did you know that in recent years China has been building one new university a week? Predictions for 2030 see Chinese graduates increasing by 300 percent. Europe and the U.S. are at 30 percent.

It’s not just about numbers; it’s also about what young people are studying. STEM graduates — science, technology, engineering, mathematics — are future entrepreneurs. China and India are expected to account for more than 60 percent of STEM graduates in major economies in 2030, and Europe will only have 8 percent. One reason: A persistent gender gap is causing Europe to miss out on nearly 50 percent of its population.

Europe also has to select, scale up and speed up key innovative sectors in the upcoming EU budget. Ask a simple question — where should Europe be innovating? — and you get 28 (sadly soon to be 27) different answers.

We have to change our approach and implement a top-down focus on a limited number of strategic projects. Rather than a watering can sprinkling resources across a myriad of priorities, we need lighthouse projects spotlighting tomorrow’s disruptive technologies such as artificial intelligence, digitalization and space. Europe must urgently scale up investments in these strategic domains, both from the public and private sector.

As the EU’s national governments discuss the EU budget for the next seven-year period, we need less cohesion funds and agricultural subsidies and more incentives for research and innovation. The first two still account for more than two-thirds of the EU budget. Can Europe live up to today’s increasing societal challenges with such ill-defined priorities? We must at least double the funding for the Horizon 2020 research and innovation program to €160 billion to not be left behind in disruptive breakthrough innovation.

Silicon Valley dominates the way we live and communicate — and it’s China snapping at the U.S.’s heels | David Ramos/Getty Images

Recently, the EU put forward its idea of an “Innovation Union.” This is a promising idea but it will need sufficient funding to not end up as political window dressing. In recent years, European businesses attracted just one-tenth of what U.S. startups received in venture capital. What jet fuel is for aircraft, venture capital is for business: It’s time to fill up our tanks.

Finally, faced with the Damocles sword of U.S. tariffs hanging over Europe, we should refrain from instinctively toughening up. After all, in some sectors, there is indeed an imbalance of tariffs. American cars imported to Europe encounter four times higher tariffs than vice versa. I don’t think we have to be afraid of American cars. Instead, Europe should propose zero tariffs on industrial products. This would reflect how closely connected our industries are. Here, of course, let’s not be naïve: Opening up depends on reciprocity.

Europe doesn’t have to be a punching bag for the U.S. and China. If it works to boost innovation, it can instead start landing a few blows of its own. Let’s be more conscious of our strengths. Europe is still the largest economy and trading bloc worldwide. Germany and France both have pro-European governments and parliaments. If Europe succeeds in standing together, we will remain bigger and stronger than the U.S. and China. The time of being passive spectators is over. Europe can’t afford another Lisbon standstill.